Outlook changing for steel sector

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Last Updated: Wed, Dec 12, 2012 04:55 hrs

Amidst all the gloom surrounding the Indian steel sector, the prices are again looking up showing signals of a better 2013.

Some steelmakers have started to put out feelers to the market that steel prices will go up in the coming months. A dealer based in Mumbai said that flat steel prices have already started moving up. Rashtriya Ispat Nigam Ltd (RINL) increased rates by Rs 500 per tonne this month when it followed most of the bigger steelmakers who raised prices by up to Rs 1,500 a tonne.

Although the move has been initiated to protect the profit margins as raw material prices have gone up in the same range, it is a positive sign as earlier there was no confidence in the companies to increase prices.

The steel demand growth in the current year has been low at five to six per cent as against the industry expectations of 8-10 per cent. And this made the companies cautious in their approach towards pricing.

With increase in long steel demand, flat steel prices are also looking up

An analyst tracking the sector said, "There has been a demand push lately and this has helped steelmakers in raising prices." He said that there has been a good five to seven per cent price hike in both flat and long steel products on a year-on-year basis.

Prasad Baji and Navin Sahadeo of Edelweiss Research in a report dated December 4, said that there are signals of an end to the slowdown in the metals sector and that lead indicators have been bottoming or improving in recent months. They said, "One of the indicators we monitor has indeed turned up. Sequential growth in projects under implementation across all three categories - infrastructure, capex and construction - has moved up in the past one-two quarters, indicating that the worst is probably over."

Although, steelmakers are yet to report a spurt in sales, the year is generally better than the previous one. Tata Steel, the country's largest steelmaker, said its sales for the first half of the year were at 3.31 million tonnes as against 3.24 million tonnes in the same period last year.

State-owned Steel Authority of India Ltd (SAIL), too, said it is seeing a demand pick-up in the recent weeks.

This demand push in long steel is giving steelmakers the required confidence to push prices upwards.

With the increase in long steel demand, which is used in the infrastructure and construction sector, even flat steel sales and prices are looking up.

Flat steel is mainly used in making cars and consumer durables like refrigerators and air conditioners. Till around 2008, these flat steel contracts were normally signed for a one-year period with price lock-ins. However, after the sharp fluctuations in coking coal and iron ore prices during the global meltdown, steelmakers scrapped the ritual and resorted to much shorter contracts, in most cases, quarterly with an option to negotiate prices on a regular basis.

Based on this flat steel price hikes, car makers have already started to increase rates. India's largest car maker, Maruti Suzuki, raised prices in October and will be doing it again in the new calendar. Hyundai Motor and Volkswagen India, too, are considering hikes because of the rising input prices, including steel.